Banque Cantonale Vaudoise v RBG Resources plc and Another

Woo Bih Li J:

[1] This action is yet another consequence of the transactions of RBG Resources plc (“RBG”) which was previously known as Allied Deals plc (“Allied Deals”). RBG had engaged in transactions with various banks which had either purchased metals from RBG or lent money to RBG on the security of metals. Many of the metals were allegedly stored in warehouses operated by or on behalf of the second defendant, Fujitrans (Singapore) Pte Ltd (“Fujitrans”). Such warehouses were not approved LME (London Metal Exchange) warehouses. Subsequently, court orders for the liquidation and appointment of liquidators of RBG were made in England and then in Singapore. In Suit No 1175 of 2002, the liquidators commenced an action, pursuant to directions made by me in interpleader proceedings, to determine competing claims of various banks and RBG to metals in warehouses, including those operated by or on behalf of Fujitrans. There were allegations that a Fujitrans employee, one Lim Tau Hee (“Lim”), had assisted RBG to perpetrate a fraud on various banks. Only the claim by one bank, Credit Lyonnais, remained in competition with RBG’s claim by the time the trial was scheduled to commence. The metals claimed by Credit Lyonnais and RBG were also in warehouses operated by or on behalf of Fujitrans. The claims proceeded to trial before me and I have since delivered my judgment: see RBG Resources plc v Banque Cantonale Vaudoise [2004] 3 SLR 421.

[2] The plaintiff in the present action, Banque Cantonale Vaudoise (“BCV”), is another bank which had entered into transactions with RBG. It has a claim against Fujitrans in respect of various groups of metals, one of which is listed in Schedule 3 of its Re-Amended Statement of Claim filed on 5 September 2002. I will refer to this claim as the Schedule 3 claim and the metals which are the subject thereof as the Schedule 3 metals. BCV alleges that the Schedule 3 metals never existed or, if they did, are no longer in the warehouses operated by or on behalf of Fujitrans.

[3] BCV’s action was commenced on 8 May 2002. On 18 June 2002, Fujitrans applied for a stay of the entire action pending the outcome of the action filed or to be filed by the liquidators to determine the competing claims I have mentioned. BCV consented to a stay of their claim in respect of metals which were also the subject of the liquidators’ action but not in respect of the Schedule 3 metals. Fujitrans’ application for a stay in respect of the Schedule 3 metals was heard by me. After hearing submissions, I did not grant a stay in respect of the Schedule 3 metals for the reasons stated in my Grounds of Judgment dated 7 November 2002: see Banque Cantonale Vaudoise v RBG Resources plc [2002] SGHC 264. Fujitrans appealed to the Court of Appeal against this decision but its appeal was dismissed on 19 February 2003.

[4] In the meantime, BCV had applied for summary judgment against Fujitrans in respect of the Schedule 3 claim on 5 September 2002, ie, after Fujitrans had applied for a stay but before the hearing of the stay application. Pending my decision and the decision of the Court of Appeal on the stay application, BCV’s application for summary judgment was held in abeyance.

[5] BCV’s application for summary judgment was eventually heard before an assistant registrar on 5 November 2003. For the purpose of that application, BCV claimed that its loss in respect of the Schedule 3 claim was caused by the negligent acts of Lim in allowing RBG’s representatives to use Fujitrans’ letterhead to issue false stock confirmations to BCV without regard as to the truth of their contents. RBG was thus vicariously liable for Lim’s negligence.

[6] The Schedule 3 claim was in respect of warehouse financing which BCV said was concluded in the following manner:

(a) RBG would “purchase” a quantity of metal of a certain type from a seller on “in-warehouse” terms.

(b) RBG would then send a written request by fax to BCV to make payment of the purchase price to the designated account of the seller.

(c) Copies of RBG’s purchase contract and the seller’s invoice would be attached to the written request, giving the impression that the sale was genuine. The payment term in the purchase contract and/or seller’s invoice would invariably be on an “at sight” basis, ie, payment was supposed to be made to the seller when RBG received the sale documents from it.

(d) On the same day as the written request for financing was made by RBG or on the following day, BCV would also receive a fax on Fujitrans’ letterhead stating that (i) Fujitrans held the type and quantity of metal as specified in the seller’s invoice to BCV’s order but for the account of RBG, and (ii) that Fujitrans would not release the cargo without BCV’s written instructions.

(e) Relying on the attornment in the fax, BCV would make payment of the purchase price to the seller’s designated bank account. The payment was effected either on the same day or the day after the fax attornment was received. BCV’s position was that it would not have made payment if it knew that the fax attornment was false, and/or that the metal did not exist, and/or that it was not held to BCV’s order.

(f) Subsequently, RBG would “sell” the metal to another counterparty. The sale was also invariably on “in-warehouse” terms. However, the sale contract allowed for payment to be made within a credit period of between 135 and 180 days.

(g) RBG would then send another written request to BCV to release the metal to the buyer.

(h) The buyer would execute a bill of exchange in favour of RBG, which would endorse the bill and deliver it to BCV.

(i) BCV would then send a fax to Fujitrans, specifically for the attention of Lim, instructing Fujitrans to release the metal to the buyer. The release instruction would refer to the previous Fujitrans attornment received by BCV.

(j) BCV would then present the bill of exchange for payment, usually through its correspondent bank in the buyer’s jurisdiction. In certain transactions, BCV was paid in full for the sum advanced to RBG. In other transactions, BCV either received partial recovery of the sum advanced or did not receive any payment under the bill of exchange.

The Schedule 3 claim concerned transactions between October 2001 and March 2002.

[8] On 12 November 2003, Fujitrans filed a notice of appeal to a judge in chambers against this decision. The appeal was initially fixed for hearing on 27 November 2003. It was adjourned to 23 March 2004 due to the unavailability of counsel.

[9] Before this appeal was heard, Fujitrans filed an application on 6 February 2004 for discovery of various categories of documents from BCV, that is:

[10] Apparently in view of Fujitrans’ application for discovery, Fujitrans’ appeal against summary judgment was held in abeyance. The discovery application was heard on 10 June 2004 by an assistant registrar. It was dismissed save for category 3 relating to BCV’s Loans and Securities Manuals. Although the discovery application did not seek the production of documents, an order for production was also made as BCV did not object to the making of such an order since discovery was being ordered. Fujitrans then filed a notice of appeal on 20 July 2004 against the assistant registrar’s decision as it still wanted discovery and production of the other seven categories of documents.

[11] The discovery appeal was heard by me on 10 August 2004. Although Mr Kenneth Lie, counsel for Fujitrans, submitted that the discovery application was not confined to the Schedule 3 claim, it seemed to me from the timing thereof and the sequence of events that it was made to avoid the summary judgment granted for the Schedule 3 claim. This was also apparent from para 11 of the First Affidavit of Fujitrans’ expert on banking, Howard Michael Andrew Palmer. In addition, I would reiterate that there was a stay of the other claims of BCV pending the outcome of Suit No 1175 of 2002. Although I have given my decision in respect of that action, there is an appeal to the Court of Appeal by Credit Lyonnais against so much of my decision which went against it. As far as I was aware, BCV had not continued with its other claims against Fujitrans pending the outcome of that appeal.

[12] After hearing submissions on the discovery appeal, it occurred to me that perhaps the discovery application was premature given that summary judgment had already been granted to BCV for the Schedule 3 claim and Fujitrans had not yet obtained leave to adduce additional evidence. Therefore, I asked counsel for each side to consider the point while I reserved judgment to reflect on the submissions made in respect of the substantive appeal.

[13] On 17 August 2004, Fujitrans’ solicitors, Joseph Tan Jude Benny (“JTJB”), wrote to the Registrar to respond to the point I had raised. Their position was that Fujitrans had proceeded with the discovery application first in order to show the court with certainty what information and documents were going to be referred to by its banking expert Howard Palmer in his intended affidavit for the appeal against summary judgment and leave would be sought to admit this intended affidavit “with other affidavits”. JTJB asserted that without knowing the final outcome of the discovery application and the documents to be obtained, Fujitrans’ application for leave would be speculative at least in part. JTJB suggested that Fujitrans would not be able to put forward its best case at the hearing of the application for leave without the benefit of the documents sought and Mr Palmer’s consideration thereof. Furthermore, if the discovery application had been wholly successful, Fujitrans’ chances of obtaining leave to adduce evidence on these documents would have substantially improved. JTJB did not think that it was necessary for it to file an application for leave immediately and that I could give my decision on its discovery appeal without the same.

[14] Rajah & Tann, the solicitors for BCV, then wrote to the Registrar on 20 August 2004. Their position was that as parties had completed their submissions on the discovery appeal, they were not suggesting that my decision on the discovery appeal be deferred until Fujitrans made its application for leave to adduce additional evidence. They were, however, of the view that Fujitrans’ intended application for leave should be filed earlier rather than later and sought directions from me on this.

[16] Before I deal with the discovery appeal before me, I would like to say something about what I consider to be the correct steps that should have been taken.

[17] One must start with the undisputed premise that by the time Fujitrans filed its discovery application, summary judgment had already been granted against it for the Schedule 3 claim. Accordingly, the office of assistant registrar was functus officio as regards any subsequent discovery application unless that application was confined to claims which were not the subject of the summary judgment. As I have stated, the purpose of the discovery application was to set aside the summary judgment on the Schedule 3 claim. Therefore, the discovery application could not and should not have been made to the assistant registrar.

[18] Could the discovery application have been made to a judge in chambers? In my view, it could have been made only in the context of the pending summary judgment appeal. It should have been made by way of a preliminary application in the appeal proper, whereupon the question as to whether the appellant should be granted leave to adduce further evidence would then have been considered first.

[19] Therefore, the discovery application should not have been made first. It seemed to me that this course of action was taken because JTJB had overlooked the point that leave should have been obtained first. Likewise, Rajah & Tann had overlooked this point. Had JTJB considered the leave point before filing the discovery application, it would or should have been obvious to them that the discovery application should not have been made to the assistant registrar. After I had raised the point as to whether leave should have been obtained first, JTJB sought belatedly to justify its steps.

[20] Naturally, in the application for leave, Fujitrans would have to indicate the additional evidence it wished to adduce. It would not have been necessary to exhibit a draft of the affidavit to be filed in support of its leave application, although this would be preferable. As it was, Mr Palmer was able to make some affidavits against BCV even without discovery. Drafts of those affidavits should have been used first to support the leave application, with the qualification that the application for leave extended to evidence to be adduced from documents for which discovery was being sought. The category of documents sought could and should have been set out in a schedule attached to the supporting affidavit and the court should then have been asked to rule on the leave application first. A possible alternative would have been for Fujitrans to file the leave application and the discovery application contemporaneously and ask that they be heard together. Naturally, it would be for the court to decide whether both applications should be heard together or not.

[21] In my view, it was putting the cart before the horse to make the discovery application first. I was not persuaded by the arguments of JTJB on this point. If it was speculative to seek leave without having discovery first, it was even more speculative to seek discovery without obtaining leave first.

[22] As for JTJB’s argument that a successful discovery application would substantially improve Fujitrans’ chances of success in its leave application, I was of the view that this argument demonstrated that it was wrong to make the discovery application first. It was precisely because a discovery order in favour of Fujitrans would or might affect the outcome of the leave application that the discovery application should not have been made first. The court hearing the leave application would have decided whether to grant leave or not. If it did, and if that leave was to extend to evidence to be adduced from documents to be discovered, the court would have directed that its order granting leave on this aspect be subject to a successful discovery application.

[23] Now that it is known that Fujitrans is appealing against my decision, I venture to express some suggestions on the steps to be taken as I believe that Fujitrans still has not filed its leave application.

[24] It seems to me that Fujitrans should immediately apply to a judge in chambers for leave to adduce evidence in respect of the summary judgment appeal, and to include an application for leave to adduce evidence from any successful application for discovery. If it succeeds, then at least the appeal against my decision will not be academic. If the application does not succeed then Fujitrans can appeal against that decision to the Court of Appeal, and that appeal should be heard together with Fujitrans’ appeal against my decision so that the Court of Appeal will be in a position to make a decision in respect of both appeals at one go. Otherwise the Court of Appeal will be in the same invidious position as I was in, ie, having to give a decision which is not in the correct sequence. On further reflection, notwithstanding that both solicitors were still seeking a ruling from me on the discovery appeal without a leave application, I should have directed that Fujitrans immediately apply for leave to adduce evidence and for that application to be heard by me so that I could have ruled on the leave application first and then on the discovery appeal. In that scenario, I would have treated the discovery appeal as a fresh application for discovery since the assistant registrar had no jurisdiction to hear the discovery application for the reason I have mentioned.

[25] If Fujitrans declines to take up the above suggestion, it is open to BCV to immediately apply to a judge in chambers for a declaration that Fujitrans is not permitted to adduce further evidence or further evidence from future discovery so that, again, any dissatisfied party may thereafter appeal to the Court of Appeal which can then deal with that appeal and the appeal against my decision in the correct sequence.

[26] Naturally, should either alternative suggestion be taken up, an application should be made to the Court of Appeal for directions in respect of the existing appeal on discovery pending the outcome of the leave application.

[27] Mr Lie argued that the remaining seven categories of documents for which discovery was sought related to Fujitrans’ defences of, inter alia, novus actus interveniens, BCV’s non-reliance on the warehouse attornments, ex turpi causa non oritur actio, contributory negligence, and/or BCV’s failure to mitigate its loss. He also submitted that these seven categories would show, inter alia, that BCV and its officers financed transactions with RBG including those resulting in the Schedule 3 claim without regard to BCV’s internal rules and procedures (if any) or standard banking practice as explained by Mr Palmer.[1]

[28] Under O 24 r 1 of the Rules of Court (Cap 322, 2004 Rev Ed, R 5), the court may at any time order a party to give discovery of documents. Such a discovery is not usually limited to any particular category of documents or any specific document although this may be so. I will refer to this as a general discovery order, but this does not suggest that the discovery to be given is of all documents whatsoever. The documents must still be relevant to the issues in the case.

[29] Under O 24 r 5(1), the court may at any time order discovery of particular documents including any class of documents. However, under O 24 r 5(4), an order under r 5 shall not be made before an order under r 1 has first been obtained in respect of the party against whom the order is sought, “unless, in the opinion of the Court, the order is necessary or desirable”.

[30] Under O 24 r 5(3)©, discovery extends to “train of inquiry” documents. Paragraph 24/5/2 of Singapore Civil Procedure 2003 (Sweet & Maxwell Asia, 2003) states:

[32] Mr Lie also cited parts of paras [6] and [7] of the judgment of Choo Han Teck JC (as he then was) in Thyssen Hunnebeck Singapore Pte Ltd v TTJ Civil Engineering Pte Ltd [2003] 1 SLR 75. I prefer to set out the entire para [6] and most of [7] as they show that the “train of inquiry” kind of discovery is not as wide as Mr Lie was suggesting. Choo JC said:

[33] The question really was the relevancy of the documents for which discovery was sought. Without discovery, Mr Palmer was able to allege in his First Affidavit in support of the discovery application that BCV had not acted “in accordance with established principles of international banking best practice”.[2] This allegation was made even though BCV was not the only bank which had financed RBG in its metal purchases and there would probably be some similarity between what BCV did and what the other banks did. However, I need say no more on this at this stage.

[34] Mr Palmer also said in his First Affidavit that in this type of transaction-by-transaction lending, BCV would have secured its own position by the following conditions precedent that would have been requested by the account manager in BCV and/or its central credit committee:

[35] Mr Palmer went on to justify why the discovery of the various categories of documents, including the seven categories which were the subject of the appeal, were necessary so as to discover whether the above were conditions precedent of the loan arrangements between BCV and RBG.

[36] Having considered his First Affidavit, it seemed to me that Mr Palmer was making two different points. First, he expected to find the specific conditions precedent in the documents sought. Second, even if they were not conditions precedent, they were steps which a prudent bank should have required. On the latter point, I was of the view that clearly no discovery was required. On the former point, the question was whether the application for the categories sought was in fact a fishing expedition as submitted by Mr Jainil Bhandari, counsel for BCV. Mr Bhandari also submitted that the discovery was merely to substantiate Mr Palmer’s suspicions which was not permissible, relying on RHM Foods Ltd v Bovril Ltd [1982] 1 All ER 673. That was a case where the plaintiff was seeking discovery before it delivered its statement of claim.

[38] Before I deal with each of the seven categories of documents, I would say that although they appeared to be specific categories, they were actually very wide. Also, they were not confined to the period of October 2001 to March 2002 during which the transactions giving rise to the Schedule 3 claim occurred.

Accounts statements for all Allied Deals/RBG accounts held at BCV for the period 1 September 1998 to May 2002 including but not limited to the overdraft account number 959.94.71

[39] Mr Palmer’s justification for this category was stated in para 66 of his First Affidavit:

[40] The very wide ambit of the category sought itself suggested that Mr Palmer was hoping to find some evidence to lend credence to his suspicion, a suspicion which was not based on anything more than his belief that an overdraft facility was a most unusual method of financing. His suspicion itself was couched in vague terms. In my view, this request was a fishing expedition.

All Term Sheet and Loan Approval Documentation sent to Allied Deals/RGB in respect of the business relationship with BCV for the period 1 September 1998 to May 2002

[41] Mr Palmer’s justification for this category was stated in para 69 of his First Affidavit:

[42] This category was very wide and demonstrated that Mr Palmer was hoping to find an omission on the part of BCV to follow a procedure. It seemed to me that this request was also a fishing expedition to try and uncover something to be used against BCV.

All Approval Forms (also known as Offering Tickets) for authorised signatory approval for the release of funds on an overdraft basis on account of Allied Deals/RBG in respect of 21 files

[43] Paragraph 72 of Mr Palmer’s First Affidavit stated that these offering tickets would guide him as to the basis upon which BCV operated its normal prudent checks (if any) for each release of funds and against which security they did so.

[44] I found the relevance of this justification to be vague. For example, supposing it was known which security funds were released against, what would that demonstrate? In my view, this request was a fishing expedition.

[45] Mr Palmer said at para 73 of his First Affidavit that the Securities Register recorded the entry of each bill of exchange given as security for each transaction. That was not disputed by BCV. Nor did BCV dispute that it did receive bills of exchange from time to time, although perhaps not necessarily for every transaction. The existence of the bills was not the issue. Mr Palmer’s point regarding bills of exchange was that BCV should have ensured that the buyers of the metal and the parties who issued the bills were acceptable to BCV. The Securities Register would not have any relevance on the point as to whether BCV should have ascertained the creditworthiness of the buyers.

The Credit Application Form and any amendments submitted to the central credit committee of BCV and subsequently approved by them, signed by the BCV account manager of RBG

[46] Mr Palmer’s justification for this request was stated in paras 74 and 75 of his First Affidavit:

[47] I was of the view that Mr Palmer was again hoping to find some communication problem between staff of BCV so as to make out a case of negligence or some other fault against BCV. This was fishing.

[48] As regards his para 75, Mr Palmer had asserted that, from the documentation he had read, the primary security for BCV was the bills of exchange. If the documentation that Mr Palmer was relying on already demonstrated this, there was no need for discovery of this category. It seemed to me that Mr Palmer was hoping to find some document to substantiate his suspicion that BCV itself had considered the bills as primary security and yet omitted to check the creditworthiness of the buyers. Again this was fishing.

All communications (including but not limited to e-mails, memoranda, records of telephone conversations and faxes) between the line supervisor in BCV head office in Lausanne, Switzerland, to Francois Greiner relating to the operation of the overdraft account (no 959.94.71) and any other temporary overdraft facilities granted to RBG

[49] At para 77 of his First Affidavit, Mr Palmer said:

[50] To me, this was again a vague justification and a fishing attempt. How did BCV’s awareness of the financial loss they were facing address the issues?

All communications (including but not limited to e-mails, memoranda, records of telephone conversations and faxes) between RBG and the designated account manager at BCV

[51] Paragraph 79 of Mr Palmer’s First Affidavit stated:

[52] I did not see how the duty of an account manager to keep the head of the department informed would enable Fujitrans to establish that BCV was not being prudent, as no specific breach by the account manager was cited. Seeing how RBG was able to convince BCV to continue financing was also irrelevant because of its vagueness. This was yet another fishing exercise.

[53] I would add that Mr Palmer made a second affidavit before the discovery appeal was heard by me and I allowed that Affidavit to be admitted. In that Affidavit, he referred to BCV’s Annual Report for 2002 and its Annual Review for 2002. Under the heading, “Corporate Governance” in the Annual Report, it is stated that “In 2002 BCV went through the worst crisis in its history”. The crisis refers to an investigation conducted by one Paolo Bernasconi, an independent expert approved by BCV and the Vaud Cantonal Government. Although Mr Palmer made further reference to that report, it turned out that his Second Affidavit did not add much to the discovery appeal.

[54] Fujitrans had not filed its Defence yet. As I have said, it was obvious that its discovery application was an attempt to support its appeal against summary judgment. This was like a case in which a bank applies for summary judgment against a guarantor of a loan, whereupon the guarantor raises numerous allegations against the bank to avoid summary judgment, for example, that the bank was negligent in allowing the borrower too much credit, and/or in not terminating the facility earlier, and/or in failing to check the value of its security, and so on. In order to avoid summary judgment, the guarantor seeks wide-ranging discovery in the hope of finding something that will enable the guarantor to find fault with the bank. In some cases, the terms of the guarantee will preclude the guarantor from raising such issues. However, what if they do not? If Fujitrans’ application were allowed, this kind of application will be made as a matter of course as part of the defendant’s strategy using the “train of inquiry” argument, when, in reality, it is a fishing expedition. Likewise, this kind of application will be made as a matter of course when a bank sues a party for negligence, misrepresentation or fraud.

[1]See para 10 of Mr Lie’s written submission.

[2]See para 19 of his First Affidavit.